8 Types of Human Capital Financial Optimizations
Over the past 10 years, our understanding of the impact that people have on organization success has undergone a major transformation. One of the main catalysts for these changes is the emergence of people analytics, which has allowed businesses to take a more strategic and data-driven approach to people decisions.
Although our decisions has become more data-driven, the one challenge that continues to persist is understanding the relationship between your people strategy and financial results. With most of the people metrics and KPIs that organizations track being non-financial, it makes it impossible for senior level decision makers to use this data to make better financial decisions around their people. With people being one of the biggest investment any company makes, having more financial visibility will help you optimize your human capital. Below are 8 areas you need to know to understand the impact your people strategy is having on overall business performance.
1. The Cost of Turnover & Its Impact On Revenue
One of the biggest costs that organizations have is turnover. Although most organizations know their turnover rate, they rarely know the impact that turnover can have on their bottom line. Even if your turnover rate is low, your cost of turnover can be high depending on the department, role and how long the employee has been at the company. By knowing the cost of turnover and its impact on revenue, it can help you optimize your retention strategy.
2. The Revenue Impact of Your Hiring Fill Rates
When scaling your team, how quickly and who you hire is critical to your success. One of the most common areas we see that impacts organizations financial goals is with hiring fill rates. If you have a revenue goal for your organization, and it requires you to hire a certain amount of employees to hit that goal, you need to know what the revenue impact of your fill rate is to make sure you stay on pace. By knowing the revenue impact of your fill rate, you can plan your workforce better and make better adjustments around your hiring process.
3. Employee ROI
For revenue generating departments within your organization, it is critical that you measure the ROI of each employee. Employee ROI refers to the revenue the employees brings in minus salary, commissions (if applicable), cost to on-board, hire and any ongoing people related investments (enablement, training, etc.). This number helps you better understand what your revenue to cost multiplier is per/employee and gives you a baseline to see where each of the ROI factors can be improved over time. It also provides you insight into where you could make adjustments to increase employee ROI, whether its increasing cost efficiency in certain people functions or implementing new solutions that grow this metric.
4. The Revenue Impact of Your Onboarding Process
Some organizations overlook their onboarding process without realizing how critical it can be to generating revenue. Ideally, when you hire new employees, you want to on-board them as quickly and efficiently as possible. We find that although organizations have metrics around onboarding, they don’t have a way to understand the impact of it on revenue. On the surface it might seem your onboarding process is doing great, but if you are not measuring how quickly employees are ramping up and adding revenue to your organization within the first 6 months of employment, then you could be missing a key area for optimization.
5. The Value of Promoting Internally vs. The Cost Of Hiring Externally
Every organization wants to hire and promote their employees internally. One thing that is helpful is figuring out the difference between the cost of retaining your employees internal versus hiring costs from the outside. This can help you determine when it makes sense when to promote employees, figure out the right level of benefits and compensation to keep them longer and even determine what investment you need to aid in the professional development of your employees.
6. The Cost Of Getting A Quality Applicant
When growing your organization, the top of the hiring funnel is critical to your ability to hire quickly and efficiently. It can be easy for you to get applicants (ex. via Linkedin and Indeed), but the cost of getting a quality applicant is more important. Every organization defines a quality applicant differently, but we like to define it as someone who moved on passed the 1st round of the interview process. The higher volume and less costly it is for you to get a quality applicant, the more likely you are going to be able to fill your organization with top talent. Sometimes organizations focus too much on getting total applicants in the funnel, the problem with this metric is it causes you to focus on recruiting strategies that might get a higher volume of candidates instead of the best candidates for your organization.
7. The Revenue Impact Your Offer Conversion Rates
Another area where we see organizations miss out in terms of revenue is with their offer conversion rates. For example, if 3 out of 5 employees you make offers to turn it down for other jobs, its going to limit your opportunity to fill roles even if other parts of your hiring funnel is operating well. Some of the most common factors that we see impact your offer conversion rate are compensation, interview process, growth potential and market conditions. To ensure that these factors aren’t impacting your companies revenue efforts, its critical that you pay attention to how boosting your offer conversion rates can impact your revenue.
8. The Revenue Value Of Investing In Employee Professional Development
If your people growth strategy is built on hiring junior-level and mid-level employees, you need to know what the financial benefit of investing in the professional development of your employees means to your organization. As an example, organizations that promote employees junior-level employees to managerial positions to prevent short-term turnover risk can sometimes cause long-term retention problems. The reason is that once organizations promote employees from non-managerial to managerial roles, it can create a people management problem if there isn’t any management training. By gaining insight into the financial value of your professional development strategy, it can help you better understand the value of employee professional development.
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